Vanguard, a big name in defined-contribution retirement plans like 401ks, recently released their How America Saves 2013 report (pdf) which included data from over a million retirement plan participants. The report itself is quite dense and a bit insider-focused, but this Vanguard blog post teased out some interesting data about the average account balance, savings rates, and asset allocation of these employees.
Whenever you hear an “average” statistic involving retirement plans, it can be confusing because you’re including both young, brand-new workers and those age 60+ who may have been working 30+ years. Thankfully, these stats are broken down into age groups. I threw the numbers into a spreadsheet to make the more palatable charts below. How do you compare?
These numbers don’t tell the whole story as people may have retirement savings outside employer-based plans, including any pensions, IRAs, or taxable accounts. Still, only around 25% of private-sector workers that participate in a retirement plan have both a pension and a defined-contribution plan (out of all workers, only 15% have a pension). This makes it seem unlikely that a 4-10% contribution rate will be adequate for the average worker to retire comfortably.
Some studies have suggested a minimum safe savings rate of 16%, and you can see the direct relationship between savings rate and years until retirement here.
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How much do people save? Not enough according to Vanguard (same goes for the Fidelity survey). Having a balance of $175K at retirement isn’t enough unless you are getting money from say a pension.
I’m amazed at how low these numbers are. I know I probably am a bit extreme in the other direction as far as a percentage of my income saved and the amount I have saved at age 33, but a little piece of me wonders if we are fools for living so cheaply and saving so much. With all these bailouts, country’s debt, and studies like this that show that people approaching retirement don’t have a prayer of having enough to live comfortably, I fear they will find a way to raid the savings of people who actually have it and spread it to those who have “lived it up” and not saved anything. Hope I am wrong, but I see a disturbing trend toward making savers the sacrificial lambs for everyone else.
True. I don’t agree with it, but I can see it happen.
I agree with you Matt and I’m consciously saving non-retirement accounts for that very reason.
Wow.. eye opening. Scary in a way too…
On one hand, those numbers make me feel very good about how much I’ve been saving. On the other hand, it kind of terrifies me that half of the investing population only retires with $175k or less.
Wow. Based upon what I’ve put away I am astonished at how low these numbers are. I’ve consistently put away (in an employer plan) ~17% since I entered the workforce at 21years old. Now at 43 these investments are over 300K. That together with a 100K+ liquid savings account I think I’m doing alright. I do worry about the scenario that Matt alludes to. Do you really think the government could simply take away our savings?
I bet alot of people surveyed might have other retirement funds or rollover IRAs that aren’t accounted for here.
The amounts on average chart are so low…when I turned 25 I had more than the average for an age group that extends to 34. With just contributions (no gains or losses), by the time I hit the 35 bracket, ill be doubling it. People need to save more :(.
I think it’s rather appalling to see the retirement numbers of people. Yes, some people can’t afford to save for retirement. Especially if they make $25,000 a year with a family. But what about the dozens of people who make a good living but choose not to save?
These surveys from companies like Vanguard are informative but need to be taken with a big grain of salt. If Fidelity, where my 401 account is, did a similar survey, my 401 account would register very close to Vanguard’s average for my age above. But that completely ignores my 457 account, my Roth IRA, and my taxable account. Compiling these kinds of numbers from customer’s accounts like this can only underestimate the results when trying to answer the question “how much are people saving for retirement.”
That’s a good point Dan. This also is probably heavily underestimating the total numbers because people typically will not keep the same job their entire career. They’ll move from one 401k to the next or roll over to an IRA and none of that money would be included here.
My gut tells me most people are still probably not saving enough, but it might not be as bad as it would seem if you only consider this study.
Fidelity does have a survey as well, I just can’t find the most recent on their site.
The numbers look pretty bad. But we should consider a few things. First about 20% of people still have pensions. If you’ve got a good pension at work then theres generally no 401k or similar. You’ve got about 15% of people under the poverty line and I don’t generally expect poor people to have fat retirement accounts. Then you’ve got say 1-5% of people who are doing very well financially and either have high assets or otherwise may not need to stash money for some future retirement. Between these groups thats roughly 40% of the population who may not have need or ability to invest in retirement accounts. If you take that into account then the other 60% may be saving close to $300k by age 65. Add in the social security that a married couple would get and you could replace ~75% of their income between 401k withdrawals and SS. Not so awful.
I would agree that the balances stat can be misleading, as many people may roll over their old 401k into an IRA and start fresh with a new 401k at the new job. That’s why I focused my comment on the contribution rate, which I think is more telling. Putting aside just 4-10% is just not going to cut it really.
Keep in mind that these stats are taken from people with a 401k that Vanguard does the recordkeeping for, which tend to be larger corporations and higher incomes than average.
Another observation is that people tend to get saving for retirement late in the game, with both a higher income and a higher savings rate when they get older. So people tend to get serious when they need to, but they don’t get to benefit as much from compounding returns as much as they could.
Matt, they/us may end up changing the tax code to help those who have not prepared themselves for retirement. It wouldn’t be straight up raiding your accounts. It might be something like means-testing social security and raising various tax rates. I hope it never means going back on promises made to those who have tax advantaged accounts like the Roth. But, it will also mean that these folks will be on a more limited income and depend far more on social security benefits than you do. I am amazed at how little my friends save. I try to gently nudge them along but it is a tricky subject. How many of you try and be a good friend in this respect? What approach do you use?
As an advice consultant with a major employer-sponsored retirement plan administrator, I can tell you anecdotally these figures seem spot on to me. My job is to help plan participants optimally allocate their investments in their employer plans, and doing so requires looking at the big picture, i.e including outside retirement assets and other sources of retirement income in a monte carlo simulation type analysis. Most people, in my experience, lack outside retirement assets to include, and when they do it’s usually insignificant.
The bottom line is we’re headed for a retirement crisis down the road as a nation, I believe. Many people will only have social security, assuming it’s there for them. People just don’t save enough, or get started saving early enough. And some have wholly inappropriate risk levels in their investment strategies.
It’s simple arithmetic of compounding returns that average folks just don’t understand, or they allow emotion to cloud their judgment, to their our peril.
and we complain about how the government handles money. individuals are just as irresponsible.
I just wanted to say thanks for the graphs. Sometimes I feel trying to plan for retirement is so overwhelming that it’s really great to have some smaller goals to achieve along the way to know you’re on the right track.